Tuesday, September 23, 2014
The President Sends the IRS Into Battle against Tax Inversions
As the CEO of Hewlett-Packard, Carly Fiorina built a business powerhouse. Unfortunately, H-P then dumped her. This led to its soap opera era (2005-11) of revolving CEOs. Later she ran for the U.S. Senate in California unsuccessfully. Meg Whitman, formerly the star of eBay, stepped in as CEO from her position as chair on September 22nd, 2011 and has been trying to unrock the ship.
FoxBusiness interviewed Fiorina today on President Obama’s action on Syria, tax inversions, America's economic malaise, and fighting the spread of Ebola. Her remarks on the divide between Main Street and Wall street is spot on!
Deals that go by the ungainly name of "tax inversions" enable a company to reincorporate in a country with a a less onerous corporate tax burden.
John D. McKinnon and Damian Paletta reported in this morning's Wall Street Journal that the U.S. Treasury Department issued new regulations and, specifically, "Treasury officials took action under five sections of the U.S. tax code to make inversions harder and less profitable, removing some of the appeal that has made the transactions more common in recent years, particularly in the pharmaceutical industry." McKinnon and Paletta further wrote, "The Treasury rules will make it harder for companies that invert to use cash accumulating abroad—a big draw in recent deals. In addition, the government has made it more difficult to complete these overseas mergers."
Money Beat explores this issue with McKinnon in this video:
FoxBusiness interviewed Fiorina today on President Obama’s action on Syria, tax inversions, America's economic malaise, and fighting the spread of Ebola. Her remarks on the divide between Main Street and Wall street is spot on!
Deals that go by the ungainly name of "tax inversions" enable a company to reincorporate in a country with a a less onerous corporate tax burden.
John D. McKinnon and Damian Paletta reported in this morning's Wall Street Journal that the U.S. Treasury Department issued new regulations and, specifically, "Treasury officials took action under five sections of the U.S. tax code to make inversions harder and less profitable, removing some of the appeal that has made the transactions more common in recent years, particularly in the pharmaceutical industry." McKinnon and Paletta further wrote, "The Treasury rules will make it harder for companies that invert to use cash accumulating abroad—a big draw in recent deals. In addition, the government has made it more difficult to complete these overseas mergers."
Money Beat explores this issue with McKinnon in this video:
Friday, September 19, 2014
Wichita Was Lucky to Lose the Tanker Contract
There is little stomach in the West to defend democracy around the world and, as night follows day, those aging republics which constitute the West show little appetite for spending on the weapons of war.
Defense spending is falling throughout the developed world. Prudent firms and metropolitan areas desiring growth will invest in more pacific lines of businesst. There was great outrage in Wichita when Boeing shifted the dwindling jobs for the Tanker contract to Seattle and other cities to satisfy its unions. Yet when commercial aircraft is waxing and military aerospace is waning, shifting from jobs dependent on defense spending to civilian activity is a sound investment in the future.
Reports from the world of commerce confirm this. Peggy Hollinger, Industry Editor for the Financial Times, wrote on September 16, 2014 that Airbus will streamline defense and space division by selling or otherwise divesting itself of units.
Doug Cameron and Robert Wall predict in the Wall Street Journal that Boeing may no longer be in the fighter business as orders for F/A-18 run out. Management shifts toward bombers, drones and trainers. Boeing's revenues from the military side fell from almost 60% to under 40% over nine years.
As Russia becomes more adventurous and China more assertive, America has grown weary of being the arsenal of democracy. The capitalists have taken note.
Defense spending is falling throughout the developed world. Prudent firms and metropolitan areas desiring growth will invest in more pacific lines of businesst. There was great outrage in Wichita when Boeing shifted the dwindling jobs for the Tanker contract to Seattle and other cities to satisfy its unions. Yet when commercial aircraft is waxing and military aerospace is waning, shifting from jobs dependent on defense spending to civilian activity is a sound investment in the future.
Reports from the world of commerce confirm this. Peggy Hollinger, Industry Editor for the Financial Times, wrote on September 16, 2014 that Airbus will streamline defense and space division by selling or otherwise divesting itself of units.
Doug Cameron and Robert Wall predict in the Wall Street Journal that Boeing may no longer be in the fighter business as orders for F/A-18 run out. Management shifts toward bombers, drones and trainers. Boeing's revenues from the military side fell from almost 60% to under 40% over nine years.
As Russia becomes more adventurous and China more assertive, America has grown weary of being the arsenal of democracy. The capitalists have taken note.
Thursday, September 18, 2014
Buying Back Corporate America
Are U.S. corporations pulling up the drawbridge? Finding an alternative to dividends? or Overlevering themselves?
The Economist argues that share buybacks may be encouraging shorttermism and that by "reducing the number of shares outstanding, buy-back schemes can also artificially boost a firm’s earnings per share." Based on its survey, buyback activity "in the S&P 500 index" reached $500 billion in 2013, "close to the high reached in the bubble year of 2007:" that is a third of U.S. corporate cashflow. Furthermore, the Economist notes that "buy-backs have usurped dividends as the main way listed American firms give money back to their owners, accounting for 60% of cash returns last year."
James McIntosh stresses the levering that buybacks are driving and warns investors, in this September 9th video, that equity markets may seem calm but the cashflow, and debt raising seem ominously like 2007: the calm before the storm. Mackintosh, the FT's investment editor, charts the close relationship among buybacks, debt raising, and cashflow. Corporate share repurchases have been converting cashflow surpluses into deficits which firms are financing with ever more debt. The result is more levered balance sheets.
Was Janet Yellen's goal in driving down interest rate to relever corporate balance sheets?
The Economist argues that share buybacks may be encouraging shorttermism and that by "reducing the number of shares outstanding, buy-back schemes can also artificially boost a firm’s earnings per share." Based on its survey, buyback activity "in the S&P 500 index" reached $500 billion in 2013, "close to the high reached in the bubble year of 2007:" that is a third of U.S. corporate cashflow. Furthermore, the Economist notes that "buy-backs have usurped dividends as the main way listed American firms give money back to their owners, accounting for 60% of cash returns last year."
James McIntosh stresses the levering that buybacks are driving and warns investors, in this September 9th video, that equity markets may seem calm but the cashflow, and debt raising seem ominously like 2007: the calm before the storm. Mackintosh, the FT's investment editor, charts the close relationship among buybacks, debt raising, and cashflow. Corporate share repurchases have been converting cashflow surpluses into deficits which firms are financing with ever more debt. The result is more levered balance sheets.
Was Janet Yellen's goal in driving down interest rate to relever corporate balance sheets?
Monday, September 08, 2014
Housing Is Being Held Back By a Shortage of Skilled Labor: the Fruits of Malinvestment
How slack are labor markets? Looking at the overall unemployment rate, 6.1% in august according to the Bureau of Labor Statistics, it would appear there is significant slack still justifying the Fed's draconian war on interest rates. Yet evidence indicates that in specific market segments, labor is short. Here Bloomberg's Mike Mckee reports on home builder's lack of laborers since the recession in this August 19th “Market Makers” video.
How are we to interpret this? The huge overhang of housing stock and the mismatch of units built and units demanded depressed housing starts. The housing bubble had drawn in workers who invested in skills that became redundant when the housing stock was overbuilt. Their newly acquired human capital became stranded and these skills atrophied during the long resulting recession when the unsustainable levels prior to 2007 could not be maintained. Those workers have retired, gone on to other fields, or joined the ranks of the disabled.
How are we to interpret this? The huge overhang of housing stock and the mismatch of units built and units demanded depressed housing starts. The housing bubble had drawn in workers who invested in skills that became redundant when the housing stock was overbuilt. Their newly acquired human capital became stranded and these skills atrophied during the long resulting recession when the unsustainable levels prior to 2007 could not be maintained. Those workers have retired, gone on to other fields, or joined the ranks of the disabled.
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